Not a single word on FOX or CNN that I caught tonight.
On Thu, Apr 9, 2009 at 7:56 PM, bruce majors <[email protected]> wrote:
> Moody's Delivers Big Blow
>
> Tax-Backed Local Gov'ts Now Negative
>
> Bond Buyer | Wednesday, April 8, 2009
>
> By Andrew Ward
>
> SAN FRANCISCO - Moody's Investors Service assigned a negative outlook to
> the entire tax-backed local government sector yesterday. It is the first
> time the agency has ever had a negative outlook on the sector.
>
> "Virtually everyone is struggling right now," Moody's senior vice president
> Eric Hoffmann said in an interview. "There is no sector or area of the
> country that is really getting off scot-free in this downturn."
>
> The negative outlook applies to a sector that includes 89,000 cities,
> counties, school districts, and special districts. It does not apply to
> enterprise revenue bonds sold by local water, sewer, or transportation
> agencies.
>
> But with the latest move, Moody's has assigned negative outlooks to much of
> the municipal marketplace. The agency assigned a negative outlook to the
> state sector in February 2008.
>
> Moody's also has negative outlooks on health care, higher education,
> housing, and airport debt. It still has a stable outlook for public power,
> and it hasn't released outlooks on the water and sewer sector.
>
> "Operating in this environment is going to be difficult, and there are
> going to be credit challenges that virtually everyone is going to have to
> address," Hoffmann said.
>
> States and local governments had about $2.2 trillion of debt outstanding at
> the end of last year, according to Federal Reserve data. The data doesn't
> distinguish between tax-backed and revenue bonds or rated and unrated debt.
>
> The negative outlook does not mean that Moody's is considering downgrades
> for each credit, Hoffmann said. Rather, the agency views the environment for
> local governments as particularly challenging over the next 12 to 18 months.
>
> "Sharply falling property values, contracting consumer spending, job
> losses, and limited credit availability lead a long list of developments
> that will make balancing budgets in the coming year particularly difficult,"
> Hoffmann said in the report.
>
> The agency will to continue to analyze credits individually, using its
> traditional rating criteria, but it plans to give heightened scrutiny to
> four particular risks - exposure to the short-term credit market, dependence
> on economically cyclical revenues, exposure to hard-hit economic sectors,
> and high fixed or mandated costs.
>
> Municipalities that use variable-rate debt have been hard hit by the credit
> crunch and a shortage of liquidity to back variable-rate debt. Moody's said
> it plans to "conduct a more detailed analysis" of short-term market risks
> and counterparty risks for governments that have more than a quarter of
> their debt in the variable-rate market or more variable-rate debt
> outstanding than liquid resources.
>
> The agency will also take a closer look at credits where the local
> economies depend heavily on hard-hit industries, such as auto manufacturing,
> real-estate development, and financial services.
>
> The agency will also scrutinize issuers that depend heavily on particularly
> cyclical revenues, such as sales and real estate transfer taxes.
>
> While governments with volatile revenue streams may have built reserves to
> cushion the downturn, "the sharpness of the housing downturn and speed of
> the general economic contractions will likely test the sufficiency of those
> reserve cushions."
>
> In such an environment, the agency plans to assess local government credits
> on the amount of flexibility they have to cut expenses.
>
> "In an economy of severely strained liquidity, an ability to rapidly reduce
> expenditures may prove a better indicator of credit quality than the
> traditional measures of municipal credit risk," Moody's said.
>
> Still, local governments that have strong reserves, rapidly address budget
> shortfalls, and use conservative budget assumptions are less likely to be
> downgraded than other credits, despite the risks of the current recession,
> Moody's said.
>
> "Local governments generally have the flexibility to deal with these
> things, but they are going to have to be much more vigilant in the current
> environment than perhaps they have been in the past," Hoffmann said.
>
> The risk to muni ratings comes at a time when many had hoped to be reaping
> upgrades. Moody's last year agreed to migrate its municipal ratings to a
> global scale that would make them equivalent to corporate ratings after
> criticism from government officials such as U.S. Rep. Barney Frank, D-Mass.,
> and California Treasurer Bill Lockyer. But in October, the agency said
> "unsettled" credit markets would delay the shift. The project remains on
> hold.
> >
>
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